Drug maker Lupin Ltd has been beating market estimates for some time now and the March quarter was no different. The net profit of Rs157 crore for the fourth quarter was higher than analysts’ estimates. According to CNBC-TV18, the firm was expected to report a net profit of Rs106 crore.
Revenues grew by 36.7% last quarter, more or less in line with the growth in the rest of the year, and operating profit rose by about 40.9%. For the whole year, revenues grew by 37.9% and operating profit rose 40.4%. This includes a handful of acquisitions, excluding which revenue growth is lower at 24%. The company didn’t disclose how much acquisitions contributed to profit, except saying that the organic part of the business was the main profit driver.
Lupin has now increased revenues at a compounded annual growth rate of over 30% in the past four years, and even if one were to exclude the impact of acquisitions, growth rates are healthy. Besides, the share of turnover in advanced markets such as the US, Europe and Japan has been steadily increasing. Last year, these markets accounted for 50% of revenues, up from 30% in fiscal year 2007-08. These markets are more profitable, and hence, the shift augurs well for earnings growth.
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Similarly, the company has moved relatively quickly from being primarily an API (active pharmaceutical ingredients) maker to being a formulations company. In 2004-05, APIs accounted for 55% of revenues.
Now, formulations account for 82%, while APIs contribute to just 18% of sales. A large proportion of the APIs the company manufactures is now used in its own formulations. This has contributed to higher profit margins.
Based on its financial performance in the past three-four years, Lupin seems relatively better placed than most Indian pharma companies, having delivered both in terms of growth and improved profitability. Yet, valuations seem relatively low at 14 times past earnings, especially since the management seems confident of continuing to grow at about 30%. One of the overhangs on the stock was inspection of the Cephalosporin facility of the company’s Mandideep, Madhya Pradesh, plant by the US Food and Drug Administration (FDA).
FDA has issued a warning letter to the company, based on which Lupin has to provide further evidence of compliance with better documentation practices.
What’s heartening, from a Lupin investor’s point of view, is that all products from this facility maintain their approved status and the company’s manufacturing won’t be disrupted.
The company has also said that it does not expect generic competition in Suprax (which accounts for about 16% of profit) in this fiscal year.
Graphics by Paras Jain / Mint
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